Adventures in Taxland, Part I

As a sideline, I do taxes for other people. It is hard to make much money, since it is only a part time seasonal gig, but I enjoy the work, and the stories are terrific. I plan to share some of those stories on this blog (with identities suitably masked), and this is the first from this season.

Since I started with my current company, I have always heard bad things said about our largest competitor. There are a number of players in the paid tax preparation market, ranging from CPAs to cash advance stores to sole practicianers who work out of their homes. But our competitive focus is on the large, multi-office chains. The biggest of these shall remain nameless, but their initials are JH.

I have always heard it said that "we don't do things like JH" or "those guys at JH don't care what they put on a tax return." If we were a bar, we would make cracks like "you can't find a clean glass in that place." I have always taken that trash talking with a grain of salt. After all, we're not over there every day; how do we know what they are doing? Still, running down the other guy is a good way to build morale in your shop.

But this week a woman came in asking us to review the work she had had done at JH. According to the woman, they had prepared and filed her tax return using her last pay stub from 2011. Once she had received her W-2, she realized that it did not agree with what she had filed, and she asked us to take another look.

IRS regulations say you are not supposed to file a tax return without the W-2 in hand. If a client comes into our office without one, we try and find one online, or failing that, we turn them away until they get that all important document from their employer. Clients don't care about this, of course. In their rush to get their hands on a tax refund, they will say or do anything to try and short circuit the process. But the paid preparer is supposed to care.

In this case, the pay stubs had not shown all of the earnings and withholding from the woman's job. Because her withholding was not all reported, it reduced her refund. Since she received both Child Tax Credit and Earned Income Credit, those were undercalculated as well. All told, not following the rules would have cost this woman hundreds of dollars in her refund.

To get the rest of her refund, the new client will have to file an amended return. The amendment will have to be mailed in, and she will have to wait a couple of months to receive the balance of her refund. Since my office will get paid for reworking her return and preparing the amendment, she will end up with less money then she would have gotten if she had come to us in the first place.

So maybe there is a difference in tax preparation services after all.